Brazil February Inflation Slows, Allays Rate Concern (Update2)

By Andre Soliani and Telma Marotto
Feb. 28 (Bloomberg) -- Brazil's broadest inflation index fell to a seven-month low in February, allaying concern that the central bank will need to increase interest rates to keep prices under control.
Consumer, construction and wholesale prices, as measured by the IGP-M, rose 0.53 percent in February compared with a 1.09 percent rise in January, the Rio de Janeiro-based Getulio Vargas Foundation said today in a report on its Web Site. The February rate was the lowest since a 0.28 percent climb in July.
``Recent benign inflation figures postpone expectations that the central bank could raise rates,'' said Marcelo Carvalho, senior economist for Morgan Stanley in Sao Paulo. ``Inflation has clearly decelerated, and the price hike at the turn of the year didn't sustain itself.''
The central bank halted its longest cycle of monetary easing in October as policy makers sought to better gauge whether an inflation pickup was temporary. Annual inflation as measured by the benchmark IPCA index surged from an eight-year low of 2.96 percent in March to 4.56 percent in January.
Carvalho said he thought that it would be premature for the central bank to resume rate reductions. He expects room for further monetary policy easing in the fourth quarter.
Wholesale
Rising wholesale and consumer food prices, which fueled inflation in previous months, decelerated in February, according to Getulio Vargas Foundation.
Wholesale agricultural prices rose 0.23 percent in February, down from 2.31 percent in January. Consumer food prices rose 0.21 percent in February compared with a 2.25 percent jump a month-earlier.
Consumer price inflation in the month through mid-February, as measured by the government's benchmark IPCA-15 index, decelerated to 0.64 percent from 0.74 percent in mid-January, the national statistic agency said in a Feb. 26 report.
In a separate report by the national statistic agency, unemployment rose to 8 percent in January from a six-year low of 7.4 percent in December. The increase was expected as companies shed temporary Christmas staffing.
Still, unemployment in January was lower than the 9.3 percent rate a year-earlier.
The real weakened to 1.6762 per dollar at 11:18 a.m. New York time. Brazil's currency yesterday touched 1.6630 per dollar, the strongest since May 1999. The currency has gained 26 percent in the past 12 months, the biggest increase among the 16 major currencies against the dollar.